Some smart Americans are retiring early, delaying Social Security at same time. Here’s the secret (and why it might be perfect for you)

That’s not a coincidence. Monthly benefits from the program are a key source of income for many retirees, and most older adults plan their escape from the labor force based on their eligibility for the program.

But some people make the unconventional decision to retire years before they claim Social Security. Effectively, they create a gap between their paychecks and benefit checks. This maneuver may not be suitable for all, but for those who can pull it off there are several financial benefits.

Here’s what you need to know about creating this gap in your retirement plan.

Creating a golden gap

Retiring early and delaying Social Security creates a golden opportunity.

The most obvious benefit is the boost to monthly benefits. If you were born in 1960 or later, you’re eligible to claim Social Security benefits at age 62.

However, doing so permanently reduces your monthly benefit by up to 30%. Waiting until your full retirement age of 67 allows you to receive your full benefit. But if you delay beyond that, your benefit increases by 8% for each year you wait, up to age 70. By age 70, your monthly benefit could be up to 24% higher. (3),(4)

A common misconception is that retiring early automatically slashes Social Security benefits. In reality, the Social Security Administration’s (SSA’s) calculation is more nuanced.

Benefits are based on your highest 35 years of inflation-adjusted earnings, which are averaged to determine your average indexed monthly earnings (AIME). That figure, in turn, drives your benefit amount. (5) Years with no earnings are counted as zeros, but only if you have fewer than 35 years of recorded earnings.

In other words, if you have at least 35 years of robust earnings under your belt, you can retire early and still expect a sizable benefit check when you claim.

Another benefit of not claiming Social Security as soon as you retire is tax-related. Lower taxable income can place you in a lower tax bracket. This allows for sophisticated maneuvers like Roth conversions.

Moving money from a pre-tax retirement account, like a traditional IRA, 401(k) or similar account, into a Roth IRA, is more cost-effective while you’re in a lower tax bracket.

In an ideal scenario, you’ve retired early, converted much of your nest egg into a Roth IRA and maximized the size of your Social Security check before you claim.

Unfortunately, this scenario is only realistic for people with a sizable nest egg to support themselves before claiming Social Security — and the patience and discipline to wait. That combination is rare, which helps explain why only about 10% of retirees delay claiming benefits until age 70 or later.